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Are car-title loans worth the cost?

Car-title loans have seemed to gain some popularity. But research shows that borrowers who use a paid-off car for collateral on a loan face high costs and potential repossession after seeking the quick fix to a cash flow problem. Commentators say that the people who usually seek a car-title loan are auto owners who cannot afford to finance a car. The lender usually requires that the auto is owned free and clear, and turns over a check for the loan secured by the title to the automobile.

The Center for Responsible Lending and Consumer Federation of America recently issued a report that shows that the average car-title loan is renewed eight times. The average amount financed totals $951, but with renewals added on, the average borrower pays $2, 142 for the loan. One in six borrowers faces repossession of the automobile.

It is usually a big loss for the borrower-not only in terms of losing access to personal transportation, but the researchers say that the typically borrower receives about 26 percent of the total value of the car through the loan. That means that the borrower is losing a large chunk of money in the value of the car if the automobile is repossessed, according to a report from Consumer Affairs.

Car-title loans are similar to the payday loan industry, which can involve high interest loans. The recent research looked at car-title loans in 21 different states. However, the report did not look at loans in Ohio, according to the Plain Dealer. State law in Ohio does not specifically address car-title loans, but the Plain Dealer reports that such loans have appeared in the state.

Many consumers hope to use a payday loan, a car-title loan or other form of credit to weather the storm for a short term when finances are tight. For many, the overall debt may just grow deeper.

There is no one-size-fits-all form of debt relief. Juggling bills may prove successful for one household, while it may just make things worse in the next. Similarly, the Bankruptcy Code offers legally recognized forms of debt relief for consumers. An individual or married couple in Ohio may find that a bankruptcy discharge or the reorganization of debt under chapter 13 can provide a fresh financial start in the face of debt.

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